Faroe Petroleum : 24/03/2015 Final Results for the Year Ended 31 December 2014 Download pdf 297kB

Faroe Petroleum, the independent oil and gas company focusing principally on exploration, appraisal and production opportunities in Norway and the UK, announces its audited results for the year ended 31 December 2014.

Exploration - successful year with significant Pil & Bue discoveries

• Significant Pil oil discovery in Norwegian Sea announced in March 2014, substantially larger than pre-drill expectations, followed by further successful discovery with the Bue side-track (combined 20-50 mmboe net to Faroe's 25% equity)
• An oil and gas discovery, not expected to be commercial on a stand-alone basis, made on Novus (close to producing Heidrun field) and condensate discovery on Solberg, announced in January and April 2014 respectively
• Butch East and Butch South West exploration wells announced as unsuccessful in May and July 2014 following the 2011 Butch Main oil discovery, which is now being planned for development
• Continued success in exploration licence rounds including awards of five new exploration licences (under the 2014 Norwegian APA Licence Round, announced in January 2015), three of which are in the Pil area

Production & Reserves - strong production performance and increase in reserves and contingent resources

• at 9,106 boepd (2013: 6,059 boepd) - at the upper end of guidance, with Njord and Hyme back on production, on schedule, and performing better than forecast
• at 6,579 boepd (2013: 5,871 boepd)
• Acquisition of operated interests in Schooner & Ketch gas fields (Faroe 60%) in the UK completed in October 2014, boosting gas production and improving tax efficiency through utilisation of carried forward tax losses
• Reserves increased by 13% with closing reserves at 30.6 mmboe (2013: 27.2 mmboe)
• Contingent resources increased by 49% to 109 mmboe (2013: 73 mmboe)

Financial - strong balance sheet and positive cashflows from operations, despite impairments

• Cash and net cash of £92.6 million and £69.6 million respectively at 31 December 2014 (31 December 2013: £40.6 million cash and net cash) £23.0 million drawn for Schooner and Ketch acquisition against the £160 million ($250 million) Reserve Based Lending facility
• Exploration Finance facility renewed and up-scaled to approx. £130 million (NOK1.5 billion) in September 2014
• Revenue £129.2 million (2013: £129.4 million) and EBITDAX £59.1 million (2013: £80.1 million) - reduction in EBITDAX principally due to lower realised price per boe at $71 (2013: $105)
• Loss after tax £55.0 million (2013: profit of £14.1 million) after pre-tax impairment charges of £38.5 million (2013: £2.1 million) and exploration write-offs of £131.7 million (2013: £15.4 million)
• Pre-tax exploration and appraisal capex of £87.2 million (£23.0 million post-tax) (2013: £73.0 million pre-tax, £24.8 million post-tax) and development and production investments (including acquisitions) of £48.3 million (2013: £48.5 million)
• Successful share placing in June 2014 raised £65 million (gross) - providing finance to accelerate exploration, appraisal and development activities and target further production acquisition opportunities

Outlook - active, fully funded exploration programme and well positioned for further acquisitions

• Forward exploration and appraisal programme fully funded from existing resources
• Four high impact exploration wells planned for 2015, including two follow up wells on the Pil discovery, all of which benefit from Norway's 78% exploration tax rebate
• 2015 exploration and appraisal capex is estimated to be approximately £100 million pre-tax (£26 million post-tax) and development and 2015 production capex is estimated to be approximately £17 million
• Production guidance for 2015 of 8,000-10,000 boepd, split 58% liquids (oil and condensate) and 42% gas
• 58% of 2015 Post-tax Production hedged - average floor at $89 per barrel for oil and £0.50 per therm for gas, predominantly with put options. At the mid-point of our 2015 production guidance, Faroe aims to be cash-neutral in 2015 at an average Brent oil price of $60/bbl and gas price of £0.45 per therm with an expected average opex of approximately $30/boe
• In strong position to capitalise on market conditions with the aim of building value through further selective value-enhancing production acquisitions

"We are pleased with the progress of the Company in 2014 despite the low oil price environment. Operationally, the year delivered excellent results for the business with significant exploration success at the Pil and Bue wells, sustained production coming in at the upper end of expectations with Njord and Hyme back on production and the acquisition of the Schooner and Ketch UK gas fields. With a reserves increase of 13% and a 49% increase in contingent resources in the year, the Company has again proved that its strategy to convert exploration prospects into resources and convert resources to reserves is working effectively.

"Our Norwegian position is now one of the most significant of any UK independent E&P company and, despite the challenging market conditions, the Company is set for another year of growth, with a fully-funded drilling programme of low cost, high impact exploration wells, all of which will benefit substantially from Norway's tax-based exploration financing incentives.

"In the current low oil price environment, there is much focus on both cost and financial strength. Faroe is particularly robust despite low oil prices, due to a combination of factors including: a significant cash position and substantially undrawn debt facilities; sustained cash flow from a balanced, low-opex and substantially hedged oil and gas production portfolio; and, following the sale in 2014 of our interest in Glenlivet, the absence of any substantial development capital commitments. Consequently, Faroe is well placed to deliver continuing commitment to its ongoing work programme and to capitalise potentially on attractive asset opportunities which may become available in the period ahead."

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Economic Production in 2014 includes production from the acquired Schooner (53.1%) and Ketch (60%) fields from 1 January 2014 (the effective date). Accounting Production excludes production between the effective date and date of completion on 9 October 2014.

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